Briscoe profits surge 11pc - wins just 2.3pc of Kathmandu

BusinessDesk

14 Sep, 2015 01:30 AM4 mins to read

Briscoe Group managing director Rod Duke said he was cautiously optimistic about the current financial year in what he described as a challenging retail environment. Photo / Paul Estcourt

Briscoe Group, the retail chain mounting a hostile takeover of Kathmandu Holdings, lifted first-half profit 11 percent, meeting guidance on improved margins and revealing it has picked up just 2.3 percent of the 80.1 percent of Kathmandu shares it doesn't already own.

Tax-paid profit rose to $20.5 million in the six months ended July 26, up from $18.5 million a year earlier, and in line with July's forecast of at least $20 million, the Auckland-based company said in a statement. Sales increased 5.4 percent to $244 million, compared to the first half of the previous financial year.

Gross margin increased to 41 percent from 39.6 percent.

"The gross margin percentage continues to benefit from the constant focus on inventory management with initiatives such as the stock receipting (via scanning) project implemented last year throughout all Briscoes Homeware and Rebel Sport stores," the retailer said in a statement. This had streamlined inventory management.

This suggests to us that Kathmandu shareholders are expecting the company to reverse the negative trends in its operating and financial performance of recent years, and to deliver greater value increases than they would obtain from a merger of the two companies.
Briscoe Group managing director Rod Duke, on the poor takeup of his Kathmandu takeover offer

"The continued refinement of the quality and breadth of local and international product ranges also continues to deliver margin gains for the group."

In the six-month period, Briscoe reported its homeware earnings before interest and tax increased 11 percent to $17.6 million, while sales advanced 3 percent to $158 million. Its sporting goods unit lifted earnings 29 percent to $10.7 million, while sales climbed 10 percent to $86 million.

Briscoe has mounted a so far unsuccessful takeover bid for Kathmandu, offering the outdoor equipment chain's shareholders five Briscoe shares for every nine Kathmandu shares as well as 20 cents per share, in a bid to buy the remaining 80.1 percent of the stock it doesn't already own. Kathmandu's board has rejected the offer and so far acceptances representing just 2.3 percent of the register, have taken up the offer to date. A creep announcement to the NZX this morning now puts Briscoe's shareholding in Kathmandu at 22.2 percent.

Briscoe managing director Rod Duke has said "take it or leave it" to the shareholders, but has reiterated he won't be upping the offer, which closes on September 17.

"We are obviously disappointed in the low acceptance level in response to our offer," Duke said. "This suggests to us that Kathmandu shareholders are expecting the company to reverse the negative trends in its operating and financial performance of recent years, and to deliver greater value increases than they would obtain from a merger of the two companies.

"As the largest shareholder in Kathmandu, we would like its performance to improve and for the value of our 20 percent Kathmandu shareholding to rise, but we see little chance of a turnaround sufficient for the directors' published forecast of a NZ$30 million profit after tax for their 2015-16 financial year (ie a 50 percent increase) to be achieved," Duke said.

Briscoe shares rose 0.7 percent to $2.97. Kathmandu shares gained 0.7 percent to $1.53 and have declined some 30 percent since the beginning of the year.

Kathmandu has announced a review of its head office structure, which could cut up to 10 percent of top management employees in Australia and New Zealand. In August the outdoor goods retailer said earnings before interest and tax probably slumped to $33.7 million in 2015 in the face of discounting, narrower margins and a disappointing Christmas season, from $64.3 million last year, with a recovery to $48.2 million forecast for the 2016 financial year.